| NEW YORK
NEW YORK May 3 Citigroup Inc has won an
injunction blocking a $383 million arbitration case filed by a
Saudi Arabian investor who accused the bank of "virtually wiping
out" his family's wealth.
U.S. District Judge Louis Stanton in Manhattan ordered a
halt to the Financial Industry Regulatory Authority arbitration
initiated by the Saudi investor, Ghazi Abbar, in 2011. The
ruling followed an eight-day trial that Stanton heard without a
The late Thursday ruling was the latest court decision to
examine what constitutes a "customer" for securities arbitration
before FINRA, the financial industry's self-regulator.
Fights over who qualifies as a customer have become common
as plaintiffs seek to recover losses suffered in the financial
crisis. Some plaintiffs prefer FINRA over courts, where lawsuits
are often subject to years of litigation. Arbitration awards are
also difficult to get overturned compared with a judgment in a
While FINRA arbitrations are a frequent forum for disputes
between broker dealers and customers, Stanton ruled that Abbar
was not legally a customer of a Citi subsidiary, Citigroup
Global Markets Inc, which is a member of FINRA and subject to
its arbitration rules.
Citing other recent cases, Stanton said courts should look
at whether an investor had an account with a FINRA member and
made a purchase to establish a rule on who is a customer.
"It gives the financial community reasonable expectations
with respect to the rule that will apply," he said.
John Rich, a lawyer for Abbar at Rich, Intelisano & Katz,
did not respond to requests for comment. Natalie Marin, a
Citigroup spokeswoman, said the bank was "pleased with the
Abbar and his father, Abdullah Mahmoud Abbar, a businessman
from Jeddah, Saudi Arabia, involved in food importing, tourism
and other businesses, brought the arbitration in August 2011
against Citigroup Global Markets.
In their claim, the Abbars said they were led into an
investment that failed due to Citigroup's "reckless and
deceitful conduct." The investment was structured to maximize
profits to Citigroup to the detriment of the Abbars, the
arbitration claim said.
The Abbars said that after Ghazi Abbar's private banker
moved from Deutsche Bank AG to Citigroup in late
2005, the Abbars entered into a complex investment transaction
through the bank.
Under the deal, the Abbars placed $343 million of their
hedge fund investment assets into a structure created by
Citigroup as part of a set of complex leveraged option
transactions, according to the plaintiffs.
The investment collapsed amid the financial crisis, causing
$383 million in losses, the Abbars said.
After the arbitration was filed, Citigroup filed the federal
lawsuit to stop the case. The bank contended the Abbars weren't
customers of its broker-dealer unit, and instead the
transactions were put together through various non-U.S.
The elder Abbar died last year, but Ghazi Abbar continued to
pursue the case.
The case is Citigroup Global Markets, Inc v. Abbar, U.S.
District Court, Southern District of New York, No. 11-06993.